Sept. 5 (Bloomberg) -- Britvic Plc, the U.K. maker of
Robinsons Barley Water, said it’s been approached by A.G. Barr
Plc about an all-share merger and has started talks to create
one of Europe’s biggest soft-drink businesses.

Agreement has been reached “with respect to certain key
aspects of the merger,” though there is no certainty of a
transaction being concluded, the companies said today in a joint
statement. The combined business would be led by A.G. Barr’s
Chief Executive Officer Roger White, they said.

Shares of both companies rose in London, with Britvic
gaining the most since its 2005 initial public offering as some
analysts speculated that the company may receive more
approaches. Britvic, which has an agreement to sell PepsiCo Inc.
products in the U.K. and Ireland until 2023, and A.G. Barr, the
maker of Irn-Bru and Orangina, are seeking to combat slower
consumer spending in the U.K., their largest market.

“The A.G. Barr management team have a very strong track
record and would add significant strength to Britvic from both
an operational and financial performance perspective,” Wayne
Brown, an analyst at Canaccord Genuity in London, wrote today.
He raised his rating on Britvic to hold from sell and increased
his price estimate to 350 pence per share from 200 pence.

All-Share Merger

Shares of London-based Britvic rose 13 percent to 370 pence
at the close, the highest price since May 3. A.G. Barr, based in
Cumbernauld, Scotland, advanced as much as 8.3 percent to 450
pence. The companies have a combined market value of about 1.4
billion pounds ($2.2 billion).

“Britvic is now in play and could attract interest from
other concerns or private equity,” analysts at Numis Securities
said in a note, naming PepsiCo as a possible suitor.

Britvic is the second-largest supplier of soft drinks to
the 7 billion-pound U.K. take-home market and is the biggest
supplier to the pubs and restaurant industry, worth about 2.7
billion pounds, according to data from Nielsen Scantrack.

A.G. Barr ranks fifth by volume in the take-home market,
which is dominated by Coca-Cola Enterprises Inc. The proposed
merger would create a business with take-home drinks volume of
1.04 billion liters in 2011, compared with CCE’s 1.77 billion
liters. Big competitors include Danone and GlaxoSmithKline Plc.

The proposed merger may have implications for Britvic’s
distribution agreements with PepsiCo, which the Purchase, New
York-based company has the right to terminate under any change
of control, according to company filings.

“We are aware of the announcement made today by Britvic
and AG Barr,” Jeff Dahncke, a spokesman for PepsiCo, said today
in an e-mail. “As a matter of policy, we do not comment on M&A
activity.”

Wet Summer

Canaccord’s Brown said he would assume that Britvic has the
agreement of PepsiCo for the transaction, which would remove
“the largest risk to the merger.”

A merger with A.G. Barr would have “compelling industrial
logic” and provide opportunities for “significant” cost and
revenue benefits, the companies said today.

The potential transaction would take the form of an all-share deal, with Britvic shareholders owning 63 percent and A.G.
Barr investors having 37 percent, the companies said.

John Gibney, Britvic’s chief financial officer, would hold
the same role at the merged group, the companies said, adding
that discussions between them are at an early stage.

Britvic, the larger company of the two, said in July that
its full-year results would be at the bottom end of estimates,
and it will suffer further losses this year after having to
recall Fruit Shoot drinks in the U.K. because of damaged caps.
The recall will reduce pretax profit this year and next by 15
million pounds to 25 million pounds, it said at the time.

Soft-drink sales in the U.K. this year have been hurt by an
unseasonably wet summer, according to Britvic.

Both companies are required to announce their intention to
bid for the other by no later than 5 p.m. on Oct. 3, according
to the statement, or to declare that they won’t make an offer.

Rothschild is acting as financial adviser for A.G. Barr,
and Citigroup Inc. for Britvic.